Owning one rental outright vs two rentals with a mortgage.

[Marc Appel]

I bought my first home last year at the young age of 32. I am hoping to fix it up and rent it out by the end of this year. I am very new to understanding property investments. So happy to have found Bigger Pockets and all 

I have a "quick" investment scenario question that may be a long answer. 

Say I had 400K to spend and just wanted to build my rental portfolio. Would you gain more by buying one 400K home and renting it without a mortgage or two 400K homes with 200K down on each and 200k mortgage on each? Would that be a 10 or 15 yr mortgage to get lower interest. Would you want to put down 300K on one and save the other 100k till you get enough for another home?

Thanks for your time,

Marc

[Stephanie Z.]

It seems like most of the posts here are likely going to tell you to fully leverage your assets and buy as many properties as you possibly can. Personally, I'm more conservative than that, but real estate is a secondary interest to me, not my primary way of earning a living or building assets, so I can afford to minimize my risks (and work) a bit while accepting somewhat lower returns. 

One thing I'd definitely consider is to be cautious about investing in lots of properties (and borrowing to do so) until you are confident in your ability to run your RE business really well. So, perhaps in your scenario, you'd buy just one 400k property with a 300k mortgage (I found that 75% LTV was the most that most lenders wanted to do for investment property) at first, but go ahead and leverage (mortgage) that property, reserving the remainder of your capital for your next investment, perhaps in 12 months or so, once you are more experienced.

Honestly, I'd be nervous about investing in a 400k property at all if that 400k is close to your entire investable assets, unless that is a relatively small part of your net worth and/or you have a reliable high income stream from other sources. I personally would choose to have my first investment(s) be things that I could cover losses fairly easily. I.e., if missing 3-6 months rent is going to really hurt, I wouldn't want it. If missing <2 years rent (or similar) would actually destabilize my family financially, I wouldn't want it . . . Personally, I'd start smaller, and do something more conservative with the other investment money until I was confident of my skills and had more experience.